Last week The Wall Street Journal reported that President Obama and his White House staff were exploring possible changes to current bankruptcy laws to allow the discharge of student loan debt. The intent of the change would be to treat student loan debt in a similar fashion to other unsecured debt such as credit cards or other consumer debt.
Current federal bankruptcy law largely prohibits the discharge of both private and government sponsored student loans. There are some exceptions to this general prohibition, but the exceptions are very rare.
The article originally published on March 10, 2015, detailed the growing problem in the country with student loan debt. Student loan debt has doubled since 2007 and 25% of borrowers find themselves in a delinquent status. The average student loan debt burden is currently just under $30,000.00.
In my practice, I encounter many clients who have thousands of dollars of student loan and limited options to deal with that debt. There are various programs to consolidate debt or to base repayment upon income for those student loan debts that are considered government backed loans. However, those with private student loans will find that those limited options do not apply to their student loans.
Even if the Administration proposes a change in the law, the prospects for passage may be slim. Congress would need to pass any proposed changes to the bankruptcy law and the current Congress has opposed most of the initiatives proposed by the Administration.